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Bayer Clinches $66 Billion Deal For Monsanto That Could Reshape The Farming Industry

After months of negotiation, German healthcare giant
Bayer has finally won over
Monsanto by striking a $128 a share takeover of the St. Louis-based agriculture giant that values the company at $66 billion when including debt. The deal, agreed after months of back and forth negotiations, will dramatically expand Bayer in the U.S. and increase its presence in agricultural seeds, where Monsanto is an industry leader.

The merger is being presented as a way to scale Bayer's operations in seeds, crop protection and other agricultural specializations as demand for vegetables and grains surges in the coming decades.

Bayer, a life sciences powerhouse with products like Aspirin, Alka-Seltzer, Claritin, Copportone sunscreen and Xarelto, has a formidable presence in crop protection where its herbicide and pest control products are used by farmers around the world. Monsanto's seed products span crops like alfalfa, canola, corn, cotton, sorghum, soybeans, sugarbeets and wheat. The cross-border corporate merger comes as Bayer and Monsanto expect the world population to grow by 3 billion people by 2050, creating an increased need for improved crop yields and sustainability.

"This challenge requires a new approach that more systematically integrates expertise across Seeds, Traits and Crop Protection including Biologicals with a deep commitment to innovation and sustainable agriculture practices," Bayer said on Tuesday morning. The combined company will benefit from Monsanto's leadership in seeds and its recent acquisition of the Climate Corporation, while Bayer's global crop protection presence may open up new markets for growth.

"Together Monsanto and Bayer will build on our proud tradition and respective track records of innovation in the agriculture industry, delivering a more comprehensive and broader set of solutions to growers," Hugh Grant, CEO of Monsanto, said in a statement. The combined business is expected to give farming customers new solutions, including agronomic insight supported by Monsanto's digital farming applications, which can bolster yields, efficiency and environmental sustainability.

Bayer's merged agriculture business will have a seeds headquarters in St. Louis, crop protection headquarters in Monheim, Germany, and will maintain a major presence in Durham, North Carolina. Meanwhile, digital businesses like the Climate Corporation will remain headquartered in San Francisco.

Merger negotiations first surfaced in May when Bayer made an unsolicited overture to buy Monsanto. At the time, Monsanto was just recovering from its failed $46.5 billion takeover effort for European seeds giant
Syngenta, and in the process of completing a $3 billion stock buyback that reduced its share count by over 10%. That buyback and post-deal strategy is now paying off with Bayer's takeover offer. Bayer's $128 a share bid values Monsanto at a 44% premium to its unaffeccted price in early 2016 before deal talks surfaced. Because Tuesday's merger carries significant antitrust and regulatory risks, Monsanto's shares remain well below Bayer's offer price, changing hands at $107.47 in midday trading.

(AFP / Patrik STOLLARZ AND John THYS)

"A merger this size, with a combined market capitalization greater than $125 billion, would result in crop protection, US soybean seeds and US corn seed market shares in excess of 25%, almost certainly drawing regulatory scrutiny and posing antitrust obstacles. However, the businesses are largely complementary, with herbicides the only potential concern," said Monica Bonar, an analyst with Fitch Ratings.

The combined company will have pro forma agriculture sales of EUR 23 billion and the ability to generate $1.5 billion in cost synergies within three years of the deal's close. Bayer expects the merger to bolster its core earnings per share within a year and to create double-digit accretion by year three. The tie-up is expected to close by the end of 2017, underscoring the complexity of antitrust approvals. Furthermore, Bayer has agreed to pay a $2 billion reverse termination fee if regulators or shareholders block its merger bid.

The German conglomerate will finance its Monsanto buy with a mix of new debt and equity. It expects to raise roughly $19 billion through a convertible bond issue and has raised $57 billion in bridge financing from a consortium of banks including BofA Merrill Lych, Credit Suisse, Goldman Sachs, HSBC and JPMorgan.

"We are pleased to announce the combination of our two great organizations. This represents a major step forward for our Crop Science business and reinforces Bayer's leadership position as a global innovation driven Life Science company with leadership positions in its core segments, delivering substantial value to shareholders, our customers, employees and society at large," Werner Baumann, CEO of Bayer, said in a statement.

"Today's announcement is a testament to everything we've achieved and the value that we have created for our stakeholders at Monsanto. We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration," added Monsanto CEO Grant.

I’m a staff writer and associate editor at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, mergers, and banks. I’m a graduate of Middlebury College and the Columbia University Graduate School of Journalism, and I’ve worked at TheStreet and Businessweek. Before becoming a financial scribe, I was a member of the fateful 2008 analyst class at Lehman Brothers. Email thoughts and tips to agara@forbes.com. Follow me on Twitter at @antoinegara